Economics of privacy

Main points

We discussed Posner’s economic analysis of the right to privacy. This comes in two parts.

An economic analysis of privacy: an examination of how privacy rights either favor or hinder social wealth.

A review of the decisions of judges to see if they conform with the economic analysis when deciding privacy cases.

The economics of privacy

The primary economic case for giving legal, enforceable rights to keep information private concerns information that is costly to acquire. If this information could not be kept secret from others, no one would have an incentive to go to the trouble of finding it: others could just sell the fruits of their labor. Everyone is better off with the system of property rights. Those who can get the information are willing to do so and those who would pay to buy it from them can do so as well.

Personal information, by contrast, is usually used to deceive others, according to Posner. To put it another way, it is used to get people to buy things they do not want, like employees with criminal records.

Finally, there is an economic case for protecting communication. Without it, it is harder to get candid information and opinions from others.

Privacy in the law

Posner maintains that courts have recognized privacy rights in ways that mirror the economic analysis of privacy. For example, it prohibits industrial surveillance that simply forces firms to take expensive counter-measures but it does not prohibit ways of acquiring information that do not provoke counter-measures. Hence aerial surveillance, which would only get other firms to hide their factories, is out while reverse engineering a product, which would not cause similar counter-measures, is OK.

Key concepts

Examples of when recognizing a right to privacy enhances a society’s wealth and when it does the opposite.